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How Do You Avoid Shareholder Disputes?

In large companies with thousands of shareholders, shareholders generally have the opportunity to vote on major decisions affecting the company.   There is usually an individual or group with a controlling interest in the business that makes the final choice on important matters.  While disputes may arise, the large volume of shares owned and the size of the company usually ensures there is a streamlined procedure for resolving disagreements.

With smaller corporations and closely held corporations, on the other hand, there is a greater potential for shareholder disputes to arise and to affect company operations. Shareholder disputes could arise among co-owners of the corporation or disputes could arise between the shareholders and executives, managers or board of directors. These types of disputes can be damaging unless there is an effective system in place for finding ways to resolve them.

At Brown & Charbonneau, LLP, our experienced Irvine business law professionals have provided representation to clients in handling all types of shareholder disputes. Whether you are a shareholder, a board member or a company officer, and whether you have a large or a small corporation, our attorneys can provide you with the guidance you need to help prevent shareholder disputes from arising and can provide assistance in resolving disputes when they occur.

How Do You Avoid Shareholder Disputes?

The best way to avoid shareholder disputes is to have a shareholders agreement in place, as well as to have other documents and contracts drafted and signed when the business first begins operations or when the organization first incorporates.

A shareholder agreement should provide details on any potential issues that can arise that could result in disagreements. The agreement should include details on:

  • When shareholder meetings are to take place and how and when shareholders can call a meeting.
  • How shareholders can form a quorum to vote on relevant issues.
  • When and how shares can be sold or transferred, what restrictions on sales of shares are imposed, and how shares are valued.
  • How shareholders provide capital for the organization and what occurs in a situation where a shareholder is unable to make a necessary capital contribution.
  • When a shareholder can be bought out of the organization.
  • What occurs upon the death of a shareholder.
  • What happens when there is an involuntary transfer of a shareholder’s assets, such as might occur in a bankruptcy situation.
  • How disputes and disagreements are to be resolved when a shareholder dispute arises.

These are just a few of many different things that should be included in a shareholder’s agreement in order to avoid shareholder disputes.  A company should not only have a shareholder’s agreement but should also have employment contracts, company bylaws, and a host of other documents that dictate what everyone’s role is and what the company’s goals are.  When everyone is on the same page about the business purpose and there is an agreement in place that provides for how disputes should be resolved, disagreements will hopefully not arise too often and will be settled quickly when they do come up.

The Orange County business lawyers at Brown & Charbonneau, LLP can assist with the creation of a shareholders agreement and with other documents necessary to protect your interests when starting a company. Call today to learn more. 714-505-3000